The Neil Woodford scandal has been a huge learning experience for investors. And one of the more painful lessons learned is that when things go wrong in the asset management industry, it can take a very long time to clear up the mess.
We are just a few weeks away from the second anniversary of the blow-up at Woodford Investment Management, yet we still await the outcome of the official investigation by the Financial Conduct Authority.
Meanwhile, there’s little indication as to when Woodford investors can expect to receive what remains of their money. But we do know the final payments owing are likely to be even smaller than most investors had been fearing.
The latest bad news is that Link Fund Solutions, the company responsible for winding down what used to be to Woodford’s flagship Equity Income fund, has once again decided to write down the value of the fund’s remaining assets, from £164million to £124million.
The writedowns have also wiped £80 million from the value of the Schroder UK Public Private Trust, formerly known as the Woodford Patient Capital Trust. Shares in the trust now trade at just above 30p, compared to £1 when it launched to a big fanfare six years ago.
So, how much confidence can investors have in the winding down process? For Jeff Prestridge, financial editor of the Mail on Sunday, the answer appears to be “not much”. In his latest column, he expressed frustration at “the inordinate amount of time” the process is taking.
“In July 2019,” writes Prestridge, “I wrote that there were a number of holdings in both the fund and investment trust that were ripe for writing down. In particular, I referred to Rutherford, a cancer treatment specialist previously known as Proton Partners.
“In November 2019, I said this company was not in good shape – making losses – and questioned the £2-a-share valuation that the trust had put on it. Our conclusion at the time (was that) any write-down in Rutherford’s valuation would have a material impact on the trust’s asset value, which could plunge it into crisis territory as its borrowings relative to debt soared way above the permitted 20 per cent limit. Link didn’t act.
“Despite a stream of London Stock Exchange announcements from Rutherford warning of losses (November 30, 2020), and the need for more funding (January 18 this year), it was not until last week that the trust’s board announced it was writing down the value of its Rutherford holding – from £81million to £34million.”
Rutherford was the trust’s largest remaining holding. Its third largest holding, Atom Bank, was also written down, along with cold fusion company Industrial Heat, Ombu, Spin Memory and Carrick Therapeutics and Mission Therapeutics. All of the companies were Woodford holdings. Meanwhile, anther Woodford pick, the unquoted nicotine inhaler Kind Consumer was written down to nil.
“To say this NAV (the fund’s value) is a disappointment is something of an understatement,” JP Morgan Cazenove wrote in an analyst note last Friday.
“This collection of writedowns highlights the problems faced by the current management team which has inherited a portfolio comprised of illiquid investments not of their choosing… There may be additional value to be unlocked from this portfolio but we still think the risk is skewed to the downside.”
1. What do you make of the way that Link has gone about the sale of Neil Woodford’s more illiquid investments?
Alan Miller:
It has been an abject disaster. It is hardly surprising given that Link completed a fire sale of illiquid assets in June 2020, not long after markets and risk appetite had been decimated by the coronavirus outbreak.
It would have been much better simply to have transferred all the illiquid investments at the outset into an investment trust with the aim of liquidating the various investments within a three year time period. This would have given all holders access to instant liquidity should they require it whilst ensuring that such assets could be sold at opportune times to maximise value.
David Ricketts:
It's difficult not to feel sorry for investors who still have money tied up in Woodford's defunct fund. Almost two years since the fund suspended — and 18 months since Link announced it would be wound up — thousands of ordinary savers are still waiting for this nightmare to be over.
Investors have rightly raised important questions about how the sale of illiquid assets left in Equity Income has been managed, notably the valuation Link put on the group of healthcare companies it sold to Acacia Research in June last year. Acacia landed an absolute bargain when it bought these stocks, selling many of them on days later and banking millions of pounds in profit as a result. The obvious question is whether a higher valuation could have been achieved for these companies, with any additional profits put towards future payments made to investors in the fund.
All the more galling for investors in the fund will be that some of the unquoted stocks bought by Acacia have surged in value since they were offloaded by Link, including Oxford Nanopore which is in the process of preparing a market listing later this year.
Owen Walker:
From the outside looking in, it appears an opaque and shambolic sell-off. Link has provided very little detail until recently about its process. I appreciate it is hard to value illiquid assets when packaging them up, but frankly some of the quick profits Acacia has made in flipping stakes do not show Link in a good light.
2. To what extent has the process served the interests of Woodford investors waiting to get what’s left of their money back?
Alan Miller:
The only people who have benefited from Link’s decision to sell these holdings have been the opportune buyers of the assets.
David Ricketts:
The process has proved incredibly profitable for the likes of Park Hill and BlackRock, which have earned millions of pounds in fees helping to offload the most difficult to sell assets left in Equity Income.
To make matters worse for investors waiting for payments, they have had to watch the value of the remaining assets in the fund continue to drop as a result of writedowns. With around £125m left in the fund, investors will be hoping there won't be any future drops in valuations, which could ultimately impact the final amount they receive back.
Owen Walker:
The process is becoming increasingly drawn out and tortuous for Woodford's former investors. For those close to or at retirement, the delays have life-changing consequences.
3. When do you think investors will receive their final payment? And will it be less than they were hoping for?
Alan Miller:
Unfortunately, investors have seen a constant drip of bad news whereby it seems many of the assets retained have seen dramatic valuation haircuts, like Rutherford Health, while many of the sold last year, Oxford Nanopore, for example, are now worth many times the amount raised. This latter holding, had it been retained, might have provided an extra £200m to Woodford investors. That compares with the remaining rump which Link recently revalued downwards from £164million to £124million.
David Ricketts:
Investors, who have already lost around £1bn since the fund was suspended, will be growing increasingly impatient with Link, and for good reason. It's been a year since investors started to receive payments, but they face a long wait to get back what they are owed.
Link said in its most recent update to investors that some of the assets in the fund won't be sold until later in 2021, so it looks like this saga will continue to drag on for some time.
Owen Walker:
Given the pace of the sell-off, I would hope Woodford investors would receive their final payment some time this year, but it will likely be after the two-year anniversary of the suspensions this June. Unfortunately many now realise they stand to be significantly out of pocket.